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FEATURE: Investing in adaptation is good for business

Guest authors Samantha Putt del Pino, Monika Kerdeman, Eliot Metzger, and Sally Prowitt of World Resources Institute report how investing in climate change adaptation makes good business sense. They consider how developing country governments can engage private investors in building resilience to climate change.

Responding to the impacts of climate change will require a significant investment from both the public and private sectors. [1,2] As governments seek to mobilize resources to increase national adaptive capacities, some will seek to engage the private sector as a critical partner. There is good reason for this. The private sector has expertise implementing infrastructure projects that can support adaptation efforts, like constructing sea walls or executing water conservation strategies. Companies have additional research expertise that can be harnessed to develop new technologies, respond to risks and opportunities, and drive capital flows to adaptation investments more quickly than the public sector. [3] Companies also support the economic vitality of the communities where they operate through employment and the provision of needed goods and services. As such, they are critical stakeholders in securing the resiliency of local markets.

Private sector support of adaptation efforts, however, will be contingent on the strength of the business case to commit time and resources for long-term climate resiliency. To this end, governments may be able to develop a portfolio of policy options that create incentives for companies to develop strategies that support adaptation priorities, along with appropriate tools to discourage business activities that may not be well-aligned with the public good.

Designing an effective strategy to engage the private sector will require governments to carefully identify their needs and potential business partners. Delineating and aligning interests for mutual benefits will help national governments focus efforts and effectively engage private sector partners.

Identifying potential private sector partners

While the “private sector” is often referred to as a homogenous unit, it is in reality highly fragmented with diverse specialties, interests, resources and capacities. Fully understanding the characteristics of businesses in any given jurisdiction may help policymakers to better target which private sector actors to engage and learn which types of policies may create a conducive environment for facilitating private sector support of governments’ adaptation needs.

Small and medium enterprises can be critical partners in the provision of goods and services needed by local, poor communities. [4] In China, 22 million town and village enterprises comprise 30 percent of GDP. [5] Policies specifically targeted at growing these small and medium enterprises can be tailored to also meet government adaptation objectives.

Some companies – like those in extractive industries – may be highly dependent on local resources and thus may be motivated to become long-term community and government partners. In Mozambique, BHP Billiton’s aluminum operation was adversely affected by the high incidence of Malaria among employees. The company partnered in a government program – the Lubombo Spatial Development Initiative – to control the disease locally, thus improving the company’s productivity and supporting the health of the community. [6]

In climate vulnerable regions, governments may benefit from identifying domestic or foreign solution providers for a specific adaptation need. Providing supportive conditions to promote investment by those companies in the region could build a local cluster of expertise that provides regional competitive advantage. Singapore has become a center of excellence for the water purification industry due to its early recognition of water management issues and consequent investment in associated research and development, which creates an attractive environment for private sector experts in field. [7]

Aligning public and private sector interests

Strategically engaging the private sector may provide valuable allies for governments to meet their climate adaptation goals. A key step to this engagement is to understand where public and private sector interests may align. In the positive alignment case, adaptation activities both supply a public need and meet business objectives.

• In a changing climate, there is a growing market demand for solutions that deal with weather stresses in the agricultural sector. Chemical company BASF is supplying customers with stress-tolerant plants, which in turn helps improve local yields of food crops like corn, soy and wheat that are exposed to extreme weather conditions. [8]

• Meeting energy needs with clean distributed power resources is a critical component of climate-resilient development. Sunlabob, based in Lao People’s Democratic Republic, has established an enterprise to provide off-grid solar, hydro and biomass energy profitably to rural areas. In doing so, energy access is improved and local entrepreneurs receive training to install and service the technologies, helping to diversify local employment, another need in many communities that may lead to enhanced adaptive capacity. [9]

These win-win examples benefit both public and private interests. Creating incentives to encourage these types of actions and investments can form the basis of a government policy package that leverages private sector resources. Incentives may be in the form of tax breaks for those companies that provide needed services to vulnerable communities or fast-track permitting for beneficial land use or operations.[10] Governments may also be able to support the growth of new markets by guaranteeing sales through government procurement contracts, or providing targeted workforce development programs.

This excerpt is based on the longer paper Making Climate Companies’ Business  from the 2010-2011 World Resources Report ‘Decision Making in a Changing Climate’.

[1] UNFCCC. 2007. Investment and Financial Flows to Address Climate Change.
[2] Bystricky, E., Gilbert, A. and Rordorf, J. 2010. Co-benefits of private investment in climate change mitigation and adaptation in developing countries. UKaid and Ecofys.…
[3] Withey, L., Borgerson, K., Herbertson, K., McGray, H., Dixon, J., Morice,, M., Welford, R., and Roeth, H. 2009. Making Climate Change Your Business. World Resources Institute, CSR Asia and SIDA.
[4] Withey et al. Making Climate Change Your Business.
[5] Khoday, K. 2007. Mobilizing Market Forces to Combat Global Environmental Change: Lessons from UN–Private Sector Partnerships in China. Review of European Community & International Environmental Law, 16: 173–184.
[6] Acclimatise and Synergy, 2008. Climate Finance, Business and Community: The Benefits of Co-operation on Adaptation. Discussion paper. Oxford, UK.
[9] Withey et al. Making Climate Change Your Business.
[10] Intellecap. 2010. Opportunities for Private Sector Engagement in Urban Climate Change Resilience Building.…

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